Thailand changes foreign ownership rules regarding insurance business
by
Stephen Frost, Bangkok International Associates
In this article, we consider recent changes to the law regarding foreign participation in the insurance industry.
Foreign ownership of insurance b rokerages: With effect from December 2011, the permitted foreign ownership percentage of insurance brokerages was increased from 25% to 49%. In addition, it is no longer a requirement for 75% of the directors to be Thai. Directors with signatory power must have passed the insurance examinations set by OIC, the Thai insurance regulator. Brokerages may operate other types of business with the OIC’s permission. Brokerages may hold licenses for both life and non-life business. Brokerages now have to submit details of their business operations containing specific information with applications to renew their licenses. All brokerages are required to maintain a capital fund, the size of which will depend on their commission income. All brokerage employees who conduct brokerage must hold an individual brokerage license.
Foreign ownership of insurance businesses: Regarding life and non-life insurance businesses, the foreign ownership requirements were last revised in February 2008. With regard to the shareholdings and directorships in an insurance company, the current position is at least 75% of the shares must be held by:
(a) Thai individuals or Thai non-juristic partnerships in which all the partners are Thai, and/or
(b) an entity registered in Thailand in which:
(i) a person in (a) has more than 50% of the shares, or
(ii) a person in (a) or an entity in (i) has more than 50% of the shares.
However, the OIC as regulator has power to permit up to 49% foreign ownership and to allow up to half of the directors to be foreign. The Finance Minister on the recommendation of the OIC, has discretion to permit greater foreign ownership and a majority of foreign directors, where the operation of the company may cause loss to insured parties or to the public. Such approval may be granted subject to conditions, or for a limited period of time.
Existing insurance companies were given five years to adjust to the new foreign shareholding and director requirements. If the requirements are still not complied with after five years, the company will not be permitted to open new branches.
In addition, all insurance companies must convert to public company status by February 2013. If a company does not do, it may continue to operate for a further three years but may not issue new policies. Failure to convert to public company status by February 2016 will mean that the company will lose its license to operate an insurance business.
Comment: The liberalisation of the rules for foreign participation in insurance brokerages is interesting, and should be considered carefully by potential foreign investors. As to life and non-life insurance businesses, this is also an area which foreign investors should investigate. The right to apply for increased foreign ownership and the obligation to convert to public company status may lead some of the smaller family-owned insurers to take in a foreign strategic partner, in order to gain access to technology and expertise and to compete with their larger rivals.
? Stephen Frost, Bangkok International Associates 2012
Bangkok International Associates is a general corporate and commercial law firm. For further information, please contact Stephen Frost by email at or telephone (66) 2 231 6201/6455.
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